Protection against the Consumer Protection Act

Things appear to have gone very quiet on the Consumer Protection Act front, but just because we haven’t heard about agents being dragged into court doesn’t mean that it is never going to happen. We spoke to various agencies to find out what precautions their agents are taking to protect themselves against potential litigation.

One has to wonder whether the powers that be really gave the matter adequate thought when they decided that the Consumer Protection Act No. 68 of 2008 (CPA) should apply to estate agents. It is after all, one thing to return a defective toaster or kettle and demand your money back, but it’s quite another to get the sale of a property overturned because the seller didn’t disclose certain things to the agent and the agent in turn didn’t disclose these issues to the buyer.

Agents are at the mercy of the seller when it comes to the disclosure of defects. Unless the agent has a degree in structural engineering, is a qualified plumber or holds another relevant qualification, she is not qualified to categorically state that the property is clear of defects. As matters stand with the interpretation of the CPA, estate agents can be held liable for something over which they have no, or very limited, control. The liability imposed on agents by the CPA has not yet been tested in a court of law. However, some agency principals are taking proactive steps to protect their agents.

The CPA came into effect in 2011 and, although there was a great deal of apprehension surrounding this new piece of legislation, there has not yet been a case where the buyer has taken an estate agent to court with regard to her failure to inform the purchaser about defects in the property in question.

This does not mean that agents should sit back, relax and assume that the entire issue was a storm in a teacup. Since the advent of the CPA, consumers have become a lot more aware of their rights and are not afraid to enforce them.

In light of that, we polled a number of agents and agencies to see what they are doing to safeguard themselves against becoming a test case under the CPA.

To be fair, as with most things legal, the wording of the Act is more than a little confusing, both to laymen and estate agents. The fact that an awful lot has been written about the subject has undoubtedly helped agents get to grips with some of their new responsibilities.

Says Michelle Cohen, who heads Leapfrog’s Johannesburg North East office: “We have had many training sessions with attorneys who are schooled in the CPA to try to ensure that our agents are at least aware of their own responsibility in terms of CPA.” She says every real estate office should be obliged to engage in ongoing training on the legislation.

Avoiding CPA Struggles

One step taken by franchise property groups countrywide is to provide a seller’s declaration warranting that the seller has disclosed all known defects to the agent. Jan Myburgh, general manager of operations and learning at Harcourts, says: “Although the declaration is necessary, it should be more important to make sure that the seller is properly educated about the CPA and its repercussions in a sale.”

Cohen says the seller must sign the disclosure document at the time of listing the property so that the agent knows exactly what she is selling prior to advertising it. Proper explanation must be given to the seller on the relevance and importance of the disclosure document.

This document must be made available to any potential purchasers, and if they are uncertain about defects, then the buyer should, at his own expense, call in an expert of his choice to inspect the property.

The disclosure document must be signed by both parties and forms part of the offer to purchase. If there are any comebacks regarding defects that were not disclosed by the seller, the agent cannot be held liable for the non-disclosure, because she can proved that she guided both buyer and seller correctly through the process.

It seems that the CPA has made selling property more difficult for agents because the average buyer (consumer) believes that agents should be experts in all matters relating to the property concerned. Meanwhile, many sellers believe they can pass the defect buck on to the agent because, in terms of the CPA, most of them do not sell property in the ordinary course of their business and are therefore not expected to be experts in this field.

Cohen says it is imperative for agents to explain to sellers their responsibility in terms of the CPA when the agent is listing the property and not when the agent presents an offer, as this “will lessen the problems that can arise from the issues that the sellers and buyers assume fall under the auspices of the CPA”.

Says Myburgh: “Agents do now rely heavily on the seller and landlord to disclose the defects in the property in order not to have a backlash from a purchaser or tenant when they find the property not to their expectation. Agents do get the calls and CPA threats when occupation is taken and the purchaser or tenant is aggrieved.”

The CPA has certainly complicated the contractual relationships in a sales or lease transaction. In normal retail contractual relationships, the seller is a business that promotes and sells the service or product in “the normal course of business”, which was the primary aim of the CPA. In real estate, the seller or landlord, the primary supplier of the product in this case, does not do so in the “normal course of business” and the nature of the product, a property, is mostly second hand, invoking the voetstoots clause provisions. It is virtually impossible to provide a guarantee on a product of this nature by cancelling a sale, refunding the purchaser and taking the property back. By the time the CPA sanctions are invoked, the seller might have bought another property, a mortgage might have been registered on the property and transfer duty paid to the South African Revenue Service.

There are, however, certain benefits that the CPA has brought to the fore by holding an agent responsible for the product that he is selling. Harry Nicolaides, CEO of Century 21 South Africa, says that the introduction of the CPA into the property sales industry can only serve to further enhance the ethics and professionalism of the industry, albeit with certain unintended consequences with regards to the role estate agents play.

Says Nicolaides: “If it’s about ensuring that a purchaser is provided with the true facts about costs and the financing process, the process of purchasing and transfer, general conditions of the property and its extent, as provided by the seller and the title deeds, together with suburb trends and features, then that is all welcome and in fact should form part of the estate agents’ role in servicing the property needs of their clients.

“However, the unintended consequences that make estate agents somewhat apprehensive and nervous about the CPA is their requirement to fulfil the very broad and – may I say – grey area of what constitutes essential information that an estate agent should disclose or is liable to disclose to purchasers.”

Besides normal and obvious deficiencies and the absence of certain disclosures and warranties regarding a property – all of which can be recorded when listing a property –Century 21 estate agents are advised and trained to make the seller responsible for all the other deficiencies which may arise, because they do not form scope of the agent’s responsibility, technical know-how or training.

As things stand, the CPA remains untested in a court of law, and let’s face it, we won’t really know what we are in for until the interpretation of the law is scrutinised by a judge. Like we’ve pointed out, there are problems with the legislation in as far as holding estate agents virtually responsible for every aspect of a property.

One thing has become abundantly clear – agents who are serious about their real estate careers go to great lengths to protect themselves from an unhappy buyer. There’s a lesson in this – make sure sellers are fully aware of the perils of non-disclosure and that agents cover every base to ensure that the buyer is getting exactly what he paid for.